No matter what you think of him, when George Soros does something in the financial markets, it typically pays to pay attention.
So, what is he up to?
As ZeroHedge reports below he is increasing his PUT option position against the stock market and increasing his CALL options position for gold mining ETFs. Let’s explore both positions a little bit further.
While his bearish position against the market represents a small portion of his overall portfolio, about 11%, it is up significantly since Q3…… establishing a clear upward moving trend. Certainly, a large chunk of it was put in as a hedge against his overwhelmingly bullish allocation. However, I think there is something bigger brewing under the surface.
George Soros is not stupid. I hope we can all agree on that. He is not about to go and put up a massive short position when the market is in a clear technical uptrend. Yes, he is hedging, but he is also getting ready to go short when the time is right. I would do exactly the same thing. Test the water at a potential point of inflection (today’s market), feel it out with a small position, go big once the market confirms the downtrend. That’s just proper money management.
I am certain Mr. Soros understands today’s macro economic environment better than anyone else out there. What he sees troubles him. Massive global credit bubble throughout western economies, emerging markets and China. Substantial asset overvaluation and a general “psychological” setup that shorts can only dream of. In other words, the market is perfectly setup for a bear leg. The bear leg that the market will exhibit between 2014-2017, as per our forecast.
On the gold side, I am starting to like both Gold and Gold Miners here. From both the technical as well as the fundamental point of view. From the technical side, both are exhibiting signs of stabilization and a reversal. This bodes well with my fundamental analysis of the overall market. As the bear market decimates the US Economy (once again) over the next 3 years (2014-17), the FED’s are bound to keep the stimulus coming. At any cost. Trying to get inflation and dollar devaluation going. Under such circumstances Gold typically does very well. Not only as a monetary instrument of “stability”, but also as hedge against economic trouble.
So, should you short the market and buy gold? Yes and Yes. The question is…..when? Please log in into your Premium Account to find out the WHEN.
A curious finding emerged in the latest 13F by Soros Fund Management, the family office investment vehicle managing the personal wealth of George Soros.
Actually, two curious findings: the first was that the disclosed Assets Under Management as of December 31, 2013 rose to a record $11.8 billion (this excludes netting and margin, and whatever one-time positions Soros may have gotten an SEC exemption to not disclose: for a recent instance of this, see Greenlight Capital’s Micron fiasco, and the subsequent lawsuit of Seeking Alpha which led to the breach of David Einhorn’s holdings confidentiality).
The second one is that the “Soros put”, a legacy hedge position that the 83-year old has been rolling over every quarter since 2010, just rose to a record $1.3 billion or the notional equivalent of some 7.09 million SPY-equivalent shares. Since this was an increase of 154% Q/Q this has some people concerned that the author of ‘reflexivity’ and the founder of “open societies” may be anticipating some major market downside.
Then again, as the chart below shows, as a percentage of total AUM, the put position rose to 11.1% of his notional holdings. By way of reference, as of June 30 2013, his SPY put may have had a smaller notional value, but it represented both more shares (7.8 million), and was far greater as a % of AUM, at 13.5%.
Finally, remember that what was disclosed on Friday is a snapshot of Soros’ holdings as of 45 days ago. What he may or may not have done with his hedge since then is largely unknown, and since there are no investor letters, there is no way of knowing even on a leaked basis how the billionaire has since positioned for the market.
That said, while the SPY puts are most likely simply a hedge to his overall bullish exposure, perhaps more notable was the $25 million call position that Soros put on the gold miners ETF which has been beaten into oblivion over the past year, in the fourth quarter. Does Soros think that it is finally the miners’ turn to shine?
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